Testing the impact of trading volume on market return and volatility： The case of the Romanian stock market

This paper examines both the return-volume and volatility-volume movements on Bucharest stock exchange, in order to evaluate the impact of changes in stock market liquidity on stock returns and on volatility of returns. We employ linear Granger-causality tests to investigate the dynamic relation between trading volume, stock returns and returns volatility on the Romanian stock market, using daily logarithmic returns for the composite index BET-C, as a proxy for the market, and daily logarithmic change in trading volume during the period January 2004-July 2008. As a proxy for return volatility we employ absolute values of daily deviation of return from its mean value during the considered time period. We can report unidirectional linear causality from returns to volume and also from volume to volatility.     

Performance of Garch Models in Forecasting the Volatility of Exchange Rate for Developing Countries

This paper empirically investigates the performance of GARCH model in forecasting the volatility of exchange rate of some developing countries. We apply linear GARCH model and non-linear GARCH model. We fit these two models to some developing countries exchange rate index from January, 1998 to February, 2005. The return series of the developing countries＇ foreign exchange rate are leptokurtic, significantly skew, deviating from normality and volatile clustering as well. We find within-sample and out-of-sample evidence that conditional estimates of non-linear GARCH model outperform the conditional estimations of linear GARCH models. In our comparisons in most of the developing countries, the non-linear GARCH model produce better results than the linear GARCH model tor forecasting the volatility of exchange rate.     

Impact of Advance Notice Periods on the Performance Persistence of Hedge Funds

This paper examines the impact of the advance notice period on hedge fund performance persistence in investors＇ portfolios. As investors in hedge funds face several trading restrictions related to the funds＇ common investment terms and conditions, it is hypothesized that the advance notice period generates illiquidity for investors and impairs their ability to benefit from performance persistence in hedge funds. Using a sample of 4,788 hedge funds over a period from 1994 to 2008 and contingency table based standard methodology for returns and Sharpe ratios, the results suggest that accounting for individual funds＇ advance notice periods has a negative impact on the performance persistence of hedge funds. The proportion of significantly persistent funds declines when incorporating the advance notice period, especially for short time horizons. Furthermore, a considerable part of hedge fund performance persistence is related to asset class-specific terms and conditions, reducing the amount of short-term performance persistence in practice.     

Retrospect of the Chinese Exchange Rate Regime after Reform： Stylized Facts during the Period from 2005 to 2010

In the present paper, we estimate the de facto RMB exchange rate regime, the currency basket, the floating band and the foreign exchange market pressure before and after the reform of the Chinese exchange rate regime in 2005. We find the following stylized facts： the value of the RAIB became stable after the reform; the weight of the US dollar remained high in the basket, while other currencies remained statistically significant; and the floating band gradually increased to lO percent during 2005-2008, and then greatly narrowed from the late summer of 2008 under the assumption of a yearly resetting interval. We find that the foreign exchange market pressure increased from 2005 to 2008. A possible reason is that the weight of the US dollar in the basket was slightly lower than the share of the US dollar in total transactions on the Chinese foreign exchange market. Therefore, it is reasonable for China to adopt a dollar peg exchange rate regime.     

Volatifity spillovers on precious metals markets and the G-7： The effects of the Asian crisis

This paper investigates the nature of volatility spillovers between stock returns and precious metals returns for the G-7 countries over the 1995-2006 period. We divide our sample into a number of sub periods, prior to, during and after the Asian crisis, with the objective to provide a wide analysis of the behaviour of these two markets taking into account the effects of the Asian crisis; We use EGARCH modelling, which takes into account whether bad news has the same impact on volatility as good news. The results show that there is no evidence of volatility persistence from stock returns to precious metals returns, but overall the results are significant in the other way around. In terms of volatility spillovers effects, the main findings are that there is evidence of volatility spill over running in a bidirectional way in almost all the cases. And finally, the results from asymmetric spillovers effects show that negative news has a stronger impact in these financial markets than positive news.     

Multivariate GARCH Volatility Across Major Industry Groups of the Stock Exchange of Thailand

This paper examines the volatility on the time-series relations among the returns of industry group indices in the stock exchange of Thailand. Does volatility of the return series in one industry group indices necessarily lead to volatility in other industry group indices among the sample of eight industry groups？ This research will be valuable to investors utilizing a better understand diversification needed to get good returns. Daily data （2,116 days） are used in this paper covering data for the nine-year period from January 5, 2004, to August 31, 2012. Multivariate Generalized Autoregressive Conditional Heteroscedasticity was tested consisted of： （1） Diagonal VEC Model; （2） Baba Engle Kraft Kroner Models （BEKK Models）; （3） Vector Autoregressive Moving Average GARCH Model （VARMA GARCH Model）; and （4） Constant Conditional Correlation Model （CCC Model）. The findings indicated that the major result shows that, volatility in one industry group necessarily lead to volatility in other industry group indices in the opposite way and in the similar way.     

People‘s Bank of China Unveils Interest Rate Policy Reform

China's central bank has unveiled its market-oriented proposals on interest rate policies. The People's Bank of China said that China's interest rate market reform would give priority to foreign currencies, rather than the Chinese currency. That means the day when the fluctuation of interest rates of foreign currencies will be liberalized would come before the floating of the Renmenbi rate.     

Robust Monetary Framework for China

I. Introduction China has made tremendous gains in terms of economic growth in the last 15 years, by inviting foreign direct investment and increasing manufacturing production and exports. The currency unification (devaluation of the official rate and unification of the official and market rates) in 1994 also contributed to the efficiency in the monetary and foreign exchange systems. China was not severely affected by the Asian currency crisis of 1997–1998, and instead China helped the regio…     

Intraregional Cross-holding of Reserve Currencies： A Proposal for Asia to Deal with the Global Reserve Risks

Economists have put forward various proposals to deal with the growing risks of the global reserve currency system. In this paper we recommend that Asian economies hold each other＇s currencies as part of their foreign reserves. Different from crisis-fighting currency swap arrangements or crisis-rescuing fund mechanisms, this mechanism means that reserves wouM be held, with a regular arrangement in place and on an ongoing basis. We propose that the global reserve system shouM be pushed in the direction of diversification, which could be a transitional step toward a new single reserve system. This mechanism would not necessitate any currency being a globally accepted reserve currency but would mean that every currency carried some weight in the reserve system. Establishment of such a system would require significant development of regional bond markets and facilitation of macroeconomic surveillance among the economies.     

Volatility spillovers among the Gulf Arab emerging markets

This paper examines the volatility spillovers among Gulf Arab emerging markets. Multivariate VAR-GARCH model of daily returns, with BEKK specification based on the conditional variances and conditional correlations, is estimated for all six GCC equity markets of Saudi Arabia, Kuwait, UAE, Qatar, Oman and Bahrain. The results show high own-volatility spillovers and a high degree of own-volatility persistence in all GCC markets. Moreover, there are significant cross-volatility spillovers and cross-volatitlity persistence among all GCC equity markets, with stronger evidence from all GCC markets to the Saudi market. Such evidence could be explained by the existence of uncertainties surrounding various Gulf bank exposures to certain Saudi business groups as well as the downward movement of oil prices.     

China＇s Sovereign Wealth Fund： Weakness and Challenges

The establishment of sovereign wealth funds in large developing countries has generated hot debate among participants in the international financial market. When accumulated foreign exchange reserves surpass a sufficient and an appropriate level, the costs, risks and impacts of holding reserves on the macroeconomy of a country need to be considered. The Chinese Government established China Investment Corporation （ CIC） in 2007 to diversify its investment of foreign reserves and to raise investment income. However, because of certain conflicts of interest and institution-design caveats, CIC possesses some internal weakness, including a vague orientation, mixed investment strategies and an inefficient bureaucratic style. Although the subprime crisis has softened certain regulations and lessened rejection by the USA of ClC potential investments, the increased volatility and uncertainty of the market means that CIC is facing some new challenges in terms of its investment decisions. Moreover, CIC is competing with other Chinese investment institutions for injections of funds from the Chinese Government.     

Measuring Net Foreign Assets： The Case of China

This paper discusses two methods of measuring net foreign assets（NFA）： directly using the financial account and indirectly using the current account. The former method is found to be more accurate than the latter method. The paper also includes a detailed discussion of the valuation methodology. The results show that China＇s NFA are much lower than the cumulative current account surplus or the cumulative foreign exchange reserves. This leads to an underestimation of growth in foreign direct investment and an overestimation of the capacity of foreign exchange reserves to cope with possible withdrawals. Therefore, the Chinese Government should pay more attention to valuation issues to obtain more accurate measurement of NFA. Meanwhile, the Chinese monetary authority should relax its control on the foreign exchange settlement system, allow the private sector to hold a certain amount of foreign exchange, and encourage foreign assets to be denominated in RMB to solve structural problems, including entity and currency mismatch     

Indian stock market reaction to international cross-listing： Evidence from Depository Receipts

The present study investigates the impact of cross listing of ADRs on the Indian stock market for the period June 2004 to July 2009. Average abnormal returns and cumulative average abnormal returns are calculated for the [-25, ＋25] event window, with the ADR listing date being the event date. The result indicates a significant negative abnormal local market return on the ADR listing day. Six out of nine companies shows increased volatility of local returns after the cross listing. We can conclude that ADR listings have no tangible benefit impact to the local shareholders.     

An asymmetric and DCC analysis of two stock markets returns＇ volatility： An evidence study on the Hong Kong and Japan＇s stock markets

This paper discusses the model construction and the association between the Hong Kong and the Japanese stock markets. The data period is from January 4, 1999 to December 30, 2005. This paper also utilizes student＇s t distribution to analyze the proposed model. The empirical results show that the bivariate asymmetric-GARCH （1, 2） model with a dynamic conditional correlation （DCC） seemed to be appropriate in evaluating the relationship between them. The empirical result also indicates a positive relation between the Hong Kong and the Japanese stock markets returns. The average estimation value of DCC coefficient equals to 0.5196, which implies that these two stock markets＇ return volatility had synchronized influence on each other. In addition, the empirical results also show that the Hong Kong and the Japanese stock markets have an asymmetrical effect. Based on the idea of the good and bad news, the explanatory ability of proposed model is better than the model of the bivariate GARCH with a DCC.     

中国外汇市场的问题与对策

An important task in the domain of Chinas foreign exchange administration in the nearterm is to improve the so-called managed floating exchange rate regime1 by deepening themarket-oriented reform of the renminbi exchange rate formation mechanism, and to allow aflexible exchange rate to have a more important role in resource allocation and macroeconomicreadjustment. The exchange rate regime is closely related to the foreign exchange market.To a large degree, the choice of the exchange rate regi…     

Pass-through Effects of Global Commodity Prices on China＇s Inflation： An Empirical Investigation

The present paper uses a two-step approach to estimate the pass-through effects of changes in international commodity prices and the RMB exchange rate on domestic consumer price inflation in China. We first estimate the pass-through effects of international commodity prices on producer prices and then estimate the pass-through effects of producer price inflation on consumer price inflation. We find that a l O-percent increase in international commodity prices would lead to China＇ s producer prices increasing by 1.2 percent 3 months later, which in turn would increase China＇ s domestic inflation by 0.24 percent over the same period. However, a 10-percent appreciation of the RMB exchange rate against the US dollar would help to reduce increases in producer prices by 4.4 percent over the following 3 months, which in turn would lead to a 0. 89-percent decline in consumer price inflation over the same period. Our findings suggest that appreciation of the RMB in an environment of rising global commodity prices and a weak US dollar could be an effective instrument to help contain inflation in China.     

International payment finality requires a supranational central-bank money： Reforming the international monetary architecture in the spirit of Keynes

Payment finality is a key issue domestically as well as across a country＇s borders. In the current international monetary architecture, the existing protocols for a delivery-versus-payment operation with central-bank money do not and cannot provide for international payment finality through the links that national central banks have established between themselves on a multilateral basis. This problem concerns each country considered as a whole, but not its residents. In this connection, moving from a positive to a normative analysis, this paper points out the lack of an international settlement institution, as well as the ways and means to provide such an institution, as the result of a structural change of the current international monetary architecture. The lack of an international means of final payment implies that, to date, countries use national currencies as objects of trade, which are thereby subjected to supply and demand on the foreign-exchange market, where exchange rates may, and do, vary daily according to a currency＇s excess demand （either positive or negative） with respect to another currency. This paper argues that exchange rates＇ erratic volatility is the result of the current international monetary disorder, which denatures national currencies when they are traded on foreign-exchange markets.     

Strategic Asset Allocation for China＇s Foreign Reserves： A Copula Approach

In this paper, we study strategic asset allocation for China＇s foreign reserves using a risk- based approach. Four aspects of the risk management are investigated： an investment universe, dependence structure, allocation strategies under risk minimization and trade-off between risks and returns. A regime-switching copula model is developed to investigate the dynamic dependence between assets. One regime emphasizes a short-term safe asset and the other regime emphasizes a long-term safe asset. The optimal allocation is derived following two strategies： risk minimization and trade-off between risks and returns in utility maximization with disappointment avoidance, lf the central bank focuses solely on risk minimization, the asymmetries in the asset return dependence encourage the flight to safety. However, if higher risks are allowed in exchange for higher returns, even the exchange is very conservative, and the asymmetries would discourage the flight to safety. Therefore, we suggest that China should mitigate its flight to safety after 2008 and increase holdings of short-term bank deposits, long-term treasury bonds and euro bonds.     

The Case for Stabilizing China＇s Exchange Rate： Setting the Stage for Fiscal Expansion

China＇s financial conundrum arises from two sources. First, its large saving （trade） surplus results in a currency mismatch because it is an immature creditor that cannot lend in its own currency. Instead, foreign currency claims （largely US dollars） build up within domestic financial institutions. Second, economists, both American and Chinese, mistakenly attribute the surpluses to an undervalued RMB. To placate the USA, the result was a gradual and predictable appreciation of the RMB against the dollar of 6 percent or more per year from July 2005 to July 2008. Together with the fall in US interest rates since mid-2007, this one- way bet in the foreign exchanges markets not only attracted hot money inflows but inhibited private capital outflows from financing China＇ s huge trade surplus. Therefore, the People＇s Bank of China had to intervene heavily to prevent the RMB from ratcheting upwards, and so became the country＇s sole international financial intermediary as official exchange reserves exploded Because of the currency mismatch, floating the RMB is neither feasible nor desirable, and a higher RMB would not reduce China＇ s trade surplus. Instead, monetary control and normal private-sector finance for the trade surplus require a return to a credibly fixed nominal RMB/USD rate similar to that which existed between 1995 and 2004. However, for any newly reset RMB/USD rate to be credible as a monetary anchor, foreign ＂China bashing＂ to get the RMB up must end. Then the stage would be set for fiscal expansion to both stimulate the economy and reduce its trade surplus.     

Linkage between stock volatility and corporate bond yield spread in Thailand

This paper studies the relationship between stock volatility and corporate bond yield spread in Thai market by using Campbell and Taksler （2003） panel data regression approach. The results show that the equity volatility＇s variables, such as finn＇s idiosyncratic risk, market risk, individual stock return and market return, are matter to explain the corporate bond yield spread. Surprisingly, these variables could explain the spread better than credit rating variables. Furthermore, during bear market period, only corporate bond yield spreads in financial finns are increasing significantly. Some of the deterministic yield spread parameters such as level and slope of interest rate also alter from bull market period.